Inbound Logistics – May, 2006
Cross-Border Transport: Keeping Free Trade Safe and Sound
By Carolyn Heinze
Cross-border shippers who implement and enforce sound security compliance procedures
can live happily ever NAFTA.
As the U.S. government continues to clamp down on security at border crossings, shippers
transporting goods to and from Canada and Mexico must comply with an increasing number of
regulations.
The key to remaining competitive lies in implementing processes that ensure compliance with
these new standards while maintaining efficiency and productivity.
"Cross-border transportation security remains a major area of concern in the United States, for
both importers and exporters," notes Steven Kersner, director of global alliances, Management
Dynamics Inc., East Rutherford, N.J. "Importers need to make sure that the products coming into
this country are appropriate, while exporters are responsible for making sure products are being
delivered to the right parties and are being used properly."
The government's challenge is to boost cross-border security without hampering free trade.
"Dealing with security issues makes trade more complicated," Kersner says. "The United States
relies on trade to remain the dominant economic power in the world, and now it must deal with
the overlying security component, which includes not only the physical security of products
traveling around the world, but also information security."
The government cannot inspect every product moving between the United States, Canada, and
Mexico; it must rely on cross-border shippers to know who they are shipping to. Shippers can
also tighten security by requiring proper documentation from their suppliers and customers, and
analyzing those documents so that questionable transactions come to light.
When implementing efficient cross-border security procedures, good training -- not necessarily
more technology -- can heed positive results, according to Dr. Larry Howard, chairman, Global
Business and Transportation Department, SUNY Maritime College, Throgs Neck, N.Y.
"A major challenge facing NAFTA trade is ensuring substantive security, while at the same time
facilitating cross-border traffic," he says. "Sure, we can do that with technology. But good old-
fashioned human alertness is important too, and it doesn't cost much, or slow down commerce.
Despite the naysayers, there are ways to achieve good security."
Training border officials, for example, is integral to making a security system work. "Border
officials need proper training," Howard says. "Instead of pouring money into high-tech
surveillance equipment and infrastructure, we ought to pay to train border patrol officers, and put
more customs officers and border protection agents on the job.
" In the end, it will be a human being, not a computer, who detects a security breach."
NAFTA Shippers on the Fast Track
The U.S. government is reaching out to cross-border shippers with programs such as the
GreenLane Maritime Cargo Security Act. The Act offers shippers the opportunity to fast-track their
cargo through Customs inspections, provided they voluntarily meet heightened security
requirements throughout the supply chain.
"Under the GreenLane Act, once shippers participate in Customs and Border Patrol's continual
auditing process -- using certified carriers and electronic documentation, and maintaining a good
compliance record -- they are validated as 'good risks.' Their cargo is put on the fast track
through inspection and clearance, even when security threat levels are raised," Howard explains.
But even with security measures such as the GreenLane Act, which is designed to expedite the
flow of cross-border freight, slowdowns at the border still occur. And that's where technology can
play a crucial role, according to Howard.
"Technology has to be integrated into the way cargo moves through the borders," he declares. "It
will facilitate the transit of cargo and begin to ease ship and truck congestion. In order to
accomplish that integration of technology, however, laborers must be assured that they are not on
the losing end of the equation.
"Too often, in the past few years, there has been a lot of counterproductive jockeying for position
on both sides," Howard continues. "Both shippers and cargo laborers need to think about making
border security work together, because in the long run, they are in it together. One side winning
ultimately means that both sides will lose."
Shippers who are not informed about the latest security regulations will ultimately experience the
most frustration at the border.
"Cross-border shippers need to take a proactive approach in order to fully understand security
requirements," says Jose Antonio Gonzalez, managing director at Con-way Mexico, which
operates six logistics centers within Mexico.
"When shippers don't fully understand regulations, or don't use a reliable service provider when
shipping goods cross-border, they sometimes forget key details," he says. "Those details can
result in frustrating shipment delays, which can inhibit competitiveness when trying to place
products in Mexico."
They Got Your Back
Service providers that specialize in staying up to date on current global trade regulations can help
shippers move products across the border, and obtain certifications that help expedite the
process.
Reliable service providers also can help shippers stay current on "restricted parties" shipments.
"The United States and other countries maintain export compliance lists detailing restricted
parties -- those the U.S. government says shippers should not deal with," Kersner explains. The
lists are maintained by the U.S. government, the European Union, and the United Nations.
"Management Dynamics tracks updates to these lists daily, so we can help shippers screen all
parties involved in their transactions," Kersner explains. "This allows shippers to make sure they
deal only with parties they are supposed to. And they can stop any shipments from being
handled by a restricted party."
Shippers and their service providers can help speed security at the borders by adopting electronic
transmission of the required paperwork, recommends Beth Enslow, senior vice president of
enterprise research, Aberdeen Group, Boston, Mass.
"Increased border security means trade documents are now scrutinized with greater intensity,"
she says. "Companies that automate those processes, and file their forms electronically, ahead of
time, gain benefits. Others watch as their goods are slowed down at the borders."
General Motors, for example, has automated its system for moving cross-border trade between
its facilities in Michigan and Ontario, Canada, and has reaped a number of benefits as a result.
"General Motors has automated document flow and ensured that all drivers are Free and
Secure Trade (FAST)-certified," Enslow explains. "As a result of creating an electronic
information flow between the company, its carriers, and its brokers, GM is able to have some
carriers make two trips over the border in one day, where before they were only able to make one
trip."
As a result of this increased carrier productivity, General Motors has achieved transportation cost
reductions through lower rates per trip.
In addition to transportation cost savings, this increased productivity let GM cut the number of
workers required to manage trade operations.
"Companies such as GM that have moved toward automating cross-border transportation can
increase the number of shipments they process without having to increase staff," Enslow says.
"They also can reduce the per-transaction cost of these shipments."
In some cases, companies using automated trade documentation systems are able to negotiate
lower fees with brokers. "If a company provides electronic information to its brokers, for example,
and negotiates that they have to use that electronic file to pre-populate clearance documents,
they might be able to save up to $200 per transaction," Enslow says.
Government Gets Tough
Automating security and trade compliance is integral to remaining competitive in the tough
NAFTA market.
"As the government becomes less lenient, and boosts fines and penalties for non-compliance, it
behooves companies to re-examine their security procedures," she says. "Companies cannot
afford to have non-compliance issues slowing down the movement of goods, or stopping them
from shipping to certain parts of the world."
Companies must consider security compliance as a strategic advantage rather than a nuisance.
"Sometimes companies deem trade compliance and customs clearance as a back-office,
administrative activity," Enslow notes. "But, the smart companies realize that understanding the
transportation procedure is valuable -- from the initial point of product design, right through to
determining where they locate manufacturing and distribution locations, and what suppliers they
use."
Despite increased security restrictions, trade between NAFTA countries will continue to develop.
"Trade between the United States, Canada, and Mexico remains one of the most significant
trading blocks within the world, and growth will continue in that area," Kersner says. "But, in
order for that growth to continue at its current pace, shippers need to comply with each country's
security rules and regulations.
"That way all shippers, in all NAFTA countries can take advantage of the benefits free trade
provides."
NAFTA Savings
Well Haworth the Effort
Office furniture company Haworth, based in Holland, Mich., boasts sales of $1.4 billion in 120
countries across the world.
Approximately 85 percent of the company's exports move to countries operating under the
NAFTA trade agreement. In an effort to take advantage of the benefits available under NAFTA,
Haworth enlisted a third-party service provider to qualify goods shipped from the United States
into Canada.
In the past, Haworth managed this task in-house, ultimately producing paper-based NAFTA
certificates that it then sent via courier to its brokers and customers. Using this procedure,
Haworth was taking advantage of only 50 percent of what it was eligible for. In an effort to move
the needle, the company's logistics team began searching for a solution that would fully automate
the NAFTA export process.
Haworth tapped East Rutherford, N.J.-based Management Dynamics Inc., a global trade
management solutions provider, for the job. Management Dynamics developed a web portal,
which solicits and manages export qualification data electronically.
The system is divided into four categories: order management, warehouse management, and two
manufacturing ERP systems. These systems are integrated into one global database, enabling
Haworth to extract all data from one location.
Export transactions are created daily, new parts are inserted into the system based on order
management data, and new records for bills of materials are developed automatically, launching
automatic solicitation. Suppliers may also communicate via an e-mail system integrated into the
entire database.
Haworth has reported $1.2 million in duties and taxes savings as a result of the new system, in
addition to an increase in regulatory compliance, according to Management Dynamics. Haworth
also has improved supplier solicitation response by 80 percent, and saved an additional $225,000
by eliminating outsourced parties.